allocating risk in commercial contracts: additional...

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Presenting a live 90-minute webinar with interactive Q&A

Allocating Risk in Commercial Contracts:

Additional Insured Endorsements

and Waivers of Subrogation

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JULY 27, 2017

Kenneth M. Gorenberg, Partner, Barnes & Thornburg, Chicago

Katie Pfeifer, Of Counsel, Dorsey & Whitney, Minneapolis

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Additional Insured Endorsements Strafford Webinar – July 27, 2017

Kenneth M. Gorenberg Barnes & Thornburg LLP One North Wacker Drive, Suite 4400 Chicago, IL 60606 312-214-5609 [email protected] https://www.linkedin.com/in/kengorenberg

https://twitter.com/BTLawNews


CONFIDENTIAL © 2017 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is confidential, proprietary and the

property of Barnes & Thornburg LLP, which may not be disseminated or disclosed to any person or entity other than the intended recipient(s),

and may not be reproduced, in any form, without the express written consent of the author or presenter. The information on this page is

intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

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FUNDAMENTALS OF AI

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AI IS A FORM OF RISK TRANSFER

• A’s risk is transferred to B’s insurer

• Can be in addition to or in lieu of B indemnifying A, and may:

– be excepted from anti-indemnity acts

– give A broad right of defense

– eliminate need for A to pay liability and get reimbursed

– be narrower than indemnity

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TRANSFER FIRST-PARTY RISK?

• Customer is additional insured under Vendor’s CGL policy

• Vendor provides services to Customer

• Customer alleges it has been damaged by Vendor

• Customer uses its additional insured status to make a claim directly on Vendor’s policy

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TRANSFER FIRST-PARTY RISK?



• Customer alleges it has been damaged by Vendor

• Customer uses its additional insured status to make a claim directly on Vendor’s policy

• But a lender may get mortagee or loss payee rights under a property policy

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TRANSFER THIRD-PARTY RISK?



• Customer is sued by third party for damage caused by Vendor

• Customer uses its additional insured status to have Vendor’s policy cover the third-party suit

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TRANSFER THIRD-PARTY RISK?



• Customer is sued by third party for damage caused by Vendor

• Customer uses its additional insured status to have Vendor’s policy cover the third-party suit

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ADDITIONAL NAMED INSURED?

• Owner hires Contractor for renovation project

• Owner issues standard terms requiring Contractor to make Owner an additional named insured on Contractor’s CGL, commercial auto, and workers comp policies

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Additional Named Insured ≠

Additional Insured

• Premiums

• Deductibles

• Notice

• Exclusions

• AI endorsements

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Throughout this policy the words "you" and "your“ refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy.







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ADDITIONAL NAMED INSURED?



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AI ON WORKERS’ COMP?



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AI ON WORKERS’ COMP?


• Owner issues standard terms requiring Contractor to make Owner an additional named insured on Contractor’s CGL and commercial auto workers comp policies

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AI ENDORSEMENTS FOR CGL POLICIES

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33 ISO ENDORSEMENTS IN 2013 CG 20 02 Additional Insured—Club Members

CG 20 03 Additional Insured—Concessionaires Trading under Your Name

CG 20 04 Additional Insured—Condominium Unit Owners

CG 20 05 Additional Insured—Controlling Interest

CG 20 07 *Additional Insured—Engineers, Architects or Surveyors (CGL)

CG 20 08 Additional Insured—Users of Golfmobiles

CG 20 10 *Additional Insured—Owners, Lessees, or Contractors—Scheduled Person or Organization

CG 20 11 Additional Insured—Managers or Lessors of Premises

CG 20 12 Additional Insured—State or Political Subdivisions—Permits

CG 20 13 Additional Insured—State or Political Subdivisions—Permits Relating to Premises

CG 20 14 Additional Insured—Users of Teams, Draft or Saddle Animals

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https://www.irmi.com/online/frmcli/sc0000cg/ch00cg20/20021185.pdf

https://www.irmi.com/online/cli/ch006/1l06h000/al005260.aspx



https://www.irmi.com/online/frmcli/sc0000cg/ch00cg20/20030413cgcw.pdf




















































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33 ISO ENDORSEMENTS IN 2013 CG 20 15 *Additional Insured—Vendors

CG 20 17 Additional Insured—Townhouse Associations

CG 20 31 Additional Insured—Engineers, Architects or Surveyors

CG 20 32 *Additional Insured—Engineers, Architects or Surveyors Not Engaged by the Named Insured

CG 20 33 *Additional Insured—Owners, Lessees or Contractors—Automatic Status When Required in Construction Agreement with You

CG 20 34 *Additional Insured—Lessor of Leased Equipment—Automatic Status When Required in Lease Agreement with You

CG 20 35 Additional Insured—Grantor of Licenses—Automatic Status When Required by Licensor

CG 20 36 Additional Insured—Grantor of Licenses

CG 20 18 Additional Insured—Mortgagee, Assignee or Receiver

CG 20 20 Additional Insured—Charitable Institutions

CG 20 21 Additional Insured—Volunteers

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https://www.irmi.com/online/cli/ch006/1l06q000/al007110/bl007120.aspx























https://www.irmi.com/online/cli/ch006/1l06h000/al6h2035.aspx























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33 ISO ENDORSEMENTS IN 2013 CG 20 22 Additional Insured—Church Members and Officers

CG 20 23 Additional Insured—Executors, Administrators, Trustees or Beneficiaries

CG 20 24 *Additional Insured—Owners or Other Interests from Whom Land Has Been Leased

CG 20 25 Additional Insured—Elective, Appointive Executive Officers of Public Corporations

CG 20 26 *Additional Insured—Designated Person or Organization

CG 20 27 Additional Insured—Co-Owner of Insured Premises

CG 20 28 *Additional Insured—Lessor of Leased Equipment

CG 20 29 Additional Insured—Grantor of Franchise

CG 20 30 Oil or Gas Operations—Nonoperating, Working Interest

CG 20 37 *Additional Insured—Owners, Lessees or Contractors—Completed Operations

CG 20 38 *Additional Insured—Owners, Lessees or Contractors—Automatic Status for Other Parties When Required in Written Construction Agreement

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https://www.irmi.com/online/cli/ch006/1l06h000/cg2038-additional-insured-owners-lessees-contractors.aspx










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Choosing and Using ISO Endorsements

• After the title, keep reading.

• Blanks to be completed.

• Conditions and limitations.

• Exclusions.

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CG 20 10 04 13: Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization

A. Section II – Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

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Burlington Ins. Co. v. NYC Transit Auth. (NY 6/6/17) • NYCTA hires BSI for subway tunnel excavation

• NYCTA, MTA, and City are listed on additional insured endorsement to BSI’s policy

• NYCTA fails to mark electric cable is turn power off

• BSI machine touches cable, causing explosion

• Injured NYCTA employee sues BSI and City

• City impleads NYCTA and MTA

• BSI’s insurer defends City but not NYCTA or MTA

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Burlington Ins. Co. v. NYC Transit Auth. (NY 6/6/17) …liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:

1. Your acts or omissions…

“The endorsement expresses in lay terms what the courts have long defined as ‘proximate causation.’” Slip. Op. at 12.

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CG 20 37 04 13: Additional Insured – Owners, Lessees or Contractors – Completed Operations

A. Section II – Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury" or "property damage" caused, in whole or in part, by "your work" at the location designated and described in the Schedule of this endorsement performed for that additional insured and included in the "products-completed operations hazard".

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CG 20 38 04 13: Additional Insured – Owners, Lessees or Contractors – Automatic Status for Other Parties When Required in Written Construction Agreement

A. Section II – Who Is An Insured is amended to include as an additional insured:

1. Any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy; and 2. Any other person or organization you are required to add as an additional insured under the contract or agreement described in Paragraph 1. above. Such person(s) or organization(s) is an additional insured only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:

a. Your acts or omissions; or b. The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured.

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“agreed in writing”

West Bend Mut. Ins. Co. v. MacDougall Pierce Const., Inc., 11 N.E.3d 531 (Ind. Ct. App. 2014)

– Contract requirements flow down, and AI coverage flows up.

Westfield Ins. Co. v. FCL Builders, Inc., 948 N.E.2d 115 (Ill. App. 2011)

– No privity between owner and sub, no AI coverage for owner.

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CG 20 15 04 13: Additional Insured – Vendors A. Section II – Who Is An Insured is amended to include as an additional insured any person(s) or organization(s) (referred to throughout this endorsement as vendor) shown in the Schedule, but only with respect to "bodily injury" or "property damage" arising out of "your products" shown in the Schedule which are distributed or sold in the regular course of the vendor's business.

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NON-ISO AI ENDORSEMENTS

“…only with respect to vicarious liability for ‘bodily injury’ or ‘property damage’ imputed from [the named insured] to the Additional Insured as a proximate result of your ongoing operations performed for that Additional Insured during the Policy Period.”

Pekin Ins. Co. v. AAA-1 Masonry & Tuckpointing, Inc., 2017 IL App (1st) 160200

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“…solely for liability due to your negligence and specifically resulting from ‘your work’ for the additional insured which is the subject of the written contract or written agreement.

“…no coverage applies to liability arising from the sole negligence of the additional insured.”

Valley Forge Ins. Co. v. Lexington Ins. Co., 2010 U.S. Dist. LEXIS 72315 (N.D. Cal. July 19, 2010)

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“…only with respect to liability arising out of ‘your work.’ This coverage does not include liability arising out of the independent acts or omissions of such person or organization.”

St. Paul Fire & Marine Ins. Co. v. Hanover Ins. Co., 187 F. Supp. 2d 584 (E.D. N.C. 2000)

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Certificate of Insurance

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Certificate of Insurance

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

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AMERICAN INSTITUTE OF ARCHITECTS

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Article 11: The Basics

• Contractor must name Owner, Architect, and Architect’s consultants as additional insureds under Contractor’s CGL

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Exhibit A: The Details

§ A.3.1.3 Additional Insured Obligations. To the fullest extent permitted by law, the Contractor shall cause the commercial general liability coverage to include (1) the Owner, the Architect, and the Architect’s consultants as additional insureds for claims caused in whole or in part by the Contractor’s negligent acts or omissions during the Contractor’s operations; and (2) the Owner as an additional insured for claims caused in whole or in part by the Contractor’s negligent acts or omissions for which loss occurs during completed operations. The additional insured coverage shall be primary and non-contributory to any of the Owner’s general liability insurance policies and shall apply to both ongoing and completed operations. To the extent commercially available, the additional insured coverage shall be no less than that provided by Insurance Services Office, Inc. (ISO) forms CG 20 10 07 04, CG 20 37 07 04, and, with respect to the Architect and the Architect’s consultants, CG 20 32 07 04.

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ISO 2013 Changes

“However, the insurance afforded to such additional insured:

1. Only applies to the extent permitted by law; and

2. Will not be broader than that which you are required by the contract or agreement to provide for such additional insured.”

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§ A.3.1.1 Certificates of Insurance. The Contractor shall provide certificates of insurance acceptable to the Owner evidencing compliance with the requirements in this Article A.3 at the following times: (1) prior to commencement of the Work; (2) upon renewal or replacement of each required policy of insurance; and (3) upon the Owner’s written request. An additional certificate evidencing continuation of commercial liability coverage, including coverage for completed operations, shall be submitted with the final Application for Payment and thereafter upon renewal or replacement of such coverage until the expiration of the periods required by Section A.3.2.1 and Section A.3.3.1. The certificates will show the Owner as an additional insured on the Contractor’s Commercial General Liability and excess or umbrella liability policy or policies.

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§ A.3.1.2 Deductibles and Self-Insured Retentions. The Contractor shall disclose to the Owner any deductible or self-insured retentions applicable to any insurance required to be provided by the Contractor.

– Is “who pays” a term for the contract, the policy,

or both?

– What happens if it isn’t paid?

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§ A.3.2.4 The Contractor may achieve the required limits and coverage for Commercial General Liability and Automobile Liability through a combination of primary and excess or umbrella liability insurance, provided such primary and excess or umbrella insurance policies result in the same or greater coverage as the coverages required under Section A.3.2.2 and A.3.2.3, and in no event shall any excess or umbrella liability insurance provide narrower coverage than the primary policy. The excess policy shall not require the exhaustion of the underlying limits only through the actual payment by the underlying insurers.

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What happens when a defendant is an AI on policies from multiple insurers?







@BTLawNews 50

Barnes & Thornburg Insurance Recovery Practice Group More than 40 of nearly 600 lawyers in the firm

Atlanta Chicago Dallas Indiana Los Angeles Michigan Minneapolis Ohio Washington, DC Wilmington, DE

Law360 Insurance Group of the Year $204 million jury verdict in Tennessee, 8/20/15

http://www.btlaw.com/insurancerecoveryandcounseling/ - our web page http://www.btpolicyholderprotection.com/ - our blog

(please subscribe)

• Ga. Operators Self-Insurers Fund v. PMA Mgmt. Corp., 143 F.Supp.3d 1317 (N.D. Ga. Feb. 19, 2015), aff’d 631 Fed.Appx. 730 (11th Cir. Nov. 10, 2015) (trial and appellate victory against TPA for mishandling workers comp claims)

• Krien v. Harsco Corp., 745 F.3d 313 (7th Cir. 2014) (appellate victory to recover on indemnity for construction accident)

• Enayati v. Atlantic Richfield Co., et al, No. BC430304 (L.A. Super. Ct. Sept. 4, 2012) (trial victory for design professional defending mesothelioma claim)

312-214-5609 [email protected]



THE INTERPLAY OF INDEMNIFICATION AND INSURANCE

The Interplay of Indemnification and

Insurance

Katie C. Pfeifer Dorsey & Whitney, LLP Minneapolis, MN (612) 492-6947


Indemnification Agreements

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Sample Indemnification Provision

“To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. . . .”

AIA A201 (2017) General Conditions § 3.18.1.

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Basic Indemnification Terms

• Who are the indemnitee and the indemnitor?

• When is the indemnification triggered?

• What types of claims/allegations are to be indemnified?

• What is the scope of the indemnification?

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Indemnitee and Indemnitor

• Indemnitor: The party who owes the obligation to indemnify

• Indemnitee: The party who receives the indemnification

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work . . . .”

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Trigger

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) . . . .”

• When is indemnification triggered?

– “Claims” – immediately

– “Damages, losses and expenses” – once incurred

– Consider adding “liabilities” – no need to pay to trigger

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Types of Claims/Allegations to be Indemnified

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) . . . .”

– Construction contracts generally include indemnification to bodily injury or property damage type claims

• Insurance coverage more likely for these types of claims

– Some contracts also include indemnification for intellectual property type claims

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• What about indemnification for other claims?

– E.g., Breach of contract? Economic loss?

– Sample language: “arising, directly or indirectly, from the performance of the Work, breach of this Contract, or a Contractor Party’s negligence or willful misconduct with respect to the Project”

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– Sample language: “Vendor shall indemnify, defend, and hold harmless the Indemnified Parties from and against Indemnified Claims for economic loss (i.e., Indemnified Claims not attributable to bodily injury, sickness, disease or death or to injury to or destruction of tangible property), but only to the extent such economic loss was caused by a breach of this Contract or the Vendor’s negligence or willful misconduct with respect to the Project.”

– But note: Such language can create problems for insurance coverage

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Scope of Indemnification

• Three types

– Narrow/Limited

– Intermediate

– Broad

• General rule: indemnity agreements attempting to shift one’s own negligence are going to be strictly construed against the indemnitee

– See, e.g., Harleysville Ins. Co. v. Physical Distrib. Servs., Inc., 716 F.3d 451 (8th Cir. 2013) (language must be “clear and unequivocal”)

• Be aware of anti-indemnification statutes

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Scope of Indemnification

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.”

– Unedited, AIA is a narrow form of indemnity

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Other Provisions

• “To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them . . . .”

– Important to try to draft against voiding the entire indemnification obligation if you run afoul of an anti-indemnification statute

– Alternative sample language: “It is agreed that with respect to any legal limitations now or hereafter in effect and affecting the validity and enforceability of the indemnification obligation under this Section [ ], such legal limitations are made a part of the indemnification obligation to the minimum extent necessary to bring Section [ ] into conformity with the requirements of such limitations and, as so modified, the indemnification obligation shall continue in full force and effect.”

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But Is Indemnification Enough?

– Is there money to back-up the indemnification obligation?

– What happens if you are sued and the indemnitor refuses to defend you? Who will pay your defense?

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Distinct Ways in Which Indemnification and

Insurance Intersect

• Insurance requirements in the contract may provide a potential pool of money to pay an indemnification claim (i.e., backs-up the obligation)

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Sample Insurance Requirement

Party A agrees to provide and maintain, at Party’s A own cost and at all times during its performance under this Agreement and for the additional period of time specified in section X below, insurance of the following types and amounts, written by insurance companies satisfactory to Company, authorized to do business in the state where the work is being performed, and having an A.M. Best’s Rating of not less than ___.

1.General Liability. CGL Insurance, providing coverage on an “occurrence,” rather than on a “claims-made” basis, under a policy form that provides coverage at least as broad in all material respects as that provided under a standard Insurance Services Office (“ISO”) form CG 00 01. Such policy shall include, but not be limited to, coverage for Bodily Injury, Property Damage, Personal and Advertising Injury, Contractual Liability (applying to this Agreement), and Products-Completed Operations Liability. Party A agrees to maintain at all times specified above a policy limit of at least $[XXXX] per occurrence and $[XXXX] aggregate.

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Insurance Intersect

• Potential defense to indemnitee under Supplementary Payments provision of CGL policy

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Supplementary Payments (CGL Policy)

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Insurance Intersect

• Insurance requirements often require that indemnitee be named an Additional Insured on a policy, allowing the indemnitee to tap the policy directly

– Most commonly the CGL policy

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Sample Additional Insured Requirement

“Party A’s CGL and Automobile Liability Insurance policies shall include Company, its directors, officers, and employees as Additional Insureds thereunder. Each such policy shall waive or otherwise prohibit insurer subrogation against Company and all such other Additional Insureds. Each such policy shall also include a severability of interests (or “separation of insureds”) provision. Party A shall require any subcontractors it hires to afford Company and other parties described above similar Additional Insured status, and to similarly waive or otherwise prohibit insurer subrogation against such Additional Insureds.

The Additional Insured status under Party A’s CGL policy shall be provided by a combination of Insurance Services Office (ISO) forms CG 20 10 and CG 20 37, or by other equivalent Additional Insured endorsement form(s) that provide both Premises and Operations and Completed Operations liability coverage that is at least as broad as that afforded by the above-referenced forms.”

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Anti-Indemnity Statutes

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Anti-Indemnity Statutes

• Prohibit indemnification agreements in certain contexts (e.g., requiring Party A to indemnify for Party B’s own sole negligence)

• Most states have enacted some type of anti-indemnity statute

• Most commonly impact oil & gas and construction-related contracts

• Can also impact contractual insurance obligations

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Construction Industry

• Vast majority of states have some form of anti-indemnity statute applicable to construction

– Different standards regarding what types of construction contracts/projects are affected

– Different scopes

• Some prohibit broad form indemnity agreements (e.g., transferring entire risk of loss to the indemnitor, regardless of fault)

• Others prohibit intermediate form indemnity agreements (e.g., requiring indemnitor to assume responsibility for either partial or full liability when partially at fault)

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Oil Industry

• Louisiana, New Mexico, Texas and Wyoming have anti-indemnification statutes specifically for the oil industry

– La. Rev. Stat. § 9:2780

– N.M. Stat. Ann. § 56-7-2

– Tex. Civ. Prac. & Rem. Code § 127.001 et seq.

– Wyo. Stat. § 30-1-131 et seq.

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Motor Carrying Industry

• Majority of states have some type of anti-indemnity statute applicable to the transportation industry

– Some prohibit motor carriers from being required to indemnify a shipper against the shipper’s negligent and intentional acts

– Some prohibit unspecified third parties (i.e., a shipper, broker, etc.) or non-motor carriers from requiring motor carriers to indemnify the third party for negligent and intentional acts

– Some prohibit indemnification for negligence-based or intentional act-based liability in any provision that affects a motor carrier agreement

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Health Care Industry

• Some jurisdictions prohibit indemnification of hospitals or other essential public services for their own negligence

– Illinois: 215 ILCS 134/95 (“No health care plan or its

subcontractors by contract . . . shall contain any clause

attempting to transfer or transferring to a health care provider by

indemnification, hold harmless or contribution requirements

concerning any liability relating to activities, actions, or omissions

of the health care plan or its officers, employees, or agents. . . .

The Illinois General Assembly find it to be against public policy

for a person to transfer liability in such a manner.””).

– California: Tunkl v. UC Regents, 60 Cal.2d 92 (Cal. 1963)

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Effect of Anti-Indemnification on Additional

Insured Status?

• Construction Industry

– An exception to the prohibition against indemnification of Party B for its own negligence: require Party A to purchase insurance to cover the Party B

• Some states extend their anti-indemnity prohibition to additional insured requirements

– For example, Arizona, California, Colorado, Kansas, Louisiana, Montana, New Mexico, Oklahoma, Oregon, Texas and Utah

• For others, it’s a grey area

• Minnesota and Arkansas specifically moved away from the additional insured “loophole”: see Minn. Stat. § 337.05; Ark. Code Ann. § 4-56-104

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Insured Status?

– Gilbane Bldg. Co. v. Empire Steel Erectors, L.P., 691 F. Supp.2d 712 (S.D.Tex. 2010), rev’d in part 664 F. 3d 589 (5th Cir. 2011)

• Employee of a subcontractor fell off a ladder and sued the general contractor

• Insurer argued that indemnity in the Contractor Agreement was unenforceable under Texas law and, therefore, general contractor was not covered as an Additional Insured

• District Court disagreed: indemnity and insurance provisions were separate clauses

• 5th Circuit affirmed this decision

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Insured Status?

• Oilfield Industry

– Texas: Tex. Civ. Prac. & Rem. Code § 127.005

• The act does not apply to an indemnity agreement “if the parties

agree in writing that the indemnity obligation will be supported by

liability insurance coverage to be furnished by the indemnitor,”

subject to limitations enumerated in the statute

– New Mexico: N.M. Stat. Ann. § 56-7-2(C)

• “A provision in an insurance contract indemnity agreement naming a

person as an additional insured … that would, if it were a direct or

collateral agreement described in … this section, be void, is

against public policy and void.”

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Insured Status?

• More generally:

– Kansas Stat. Ann. § 16-121:

(b) An indemnification provision in a contract which requires the promisor to indemnify the promisee for the promisee’s negligence or intentional acts or omissions is against public policy and is void and unenforceable.

(c) A provision in a contract which requires a party to provide liability coverage to another party, as an additional insured, for such party’s own negligence or intentional acts is against public policy and is void and unenforceable.”

– Applicable to construction contracts, motor carrier transportation contracts, dealer agreements, and franchise agreements

– Some important carve-backs

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Insured Status?

• Norfolk & Dedham Mut. Fire Ins. Co. v. Morrison, 456 Mass. 463 (2010), aff’d 79 Mass. App. Ct. 1128 (Mass. App. Ct. 2011)

– Statutory prohibition against indemnity agreements did not apply to the lease’s insurance requirement

– “[A]n agreement in a lease that the tenant indemnify or hold harmless the landlord is distinct from an agreement to purchase insurance on the landlord’s behalf, which covers the liability of both in the event of a negligently caused injury.” Norfolk, 456 Mass. at 473.

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Practice Tip:

Anti-Indemnification Statutes

• Consider any applicable legislation which may impact the additional insured’s right to coverage

• Consider language in the contract to avoid potential “death penalty” for overreaching: voiding of the indemnification or additional insured requirement

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How Broad Is Additional Insured Coverage, or

Which Document Do I Need to Review?

• Does the insurance obligation essentially back-stop the contractual indemnity obligation, or

• Does it cover more than the Additional Insured would be able to recover under the indemnity agreement?

• In other words, does the language of the relevant contract control the scope of coverage afforded to the Additional Insured, or does the insurance policy stand on its own?

• Answer: It Depends.

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Case study: In re Deepwater Horizon, 470

S.W.3d 452 (Tex. 2015)

• April 2010 explosion and sinking of the Deepwater Horizon oil-drilling rig (owned by Transocean), and the resulting discharge of oil into the Gulf of Mexico

– BP was the oilfield developer

• Damage resulted in much litigation, including an insurance coverage dispute

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Deepwater Horizon: The Additional Insured

Obligation in the Drilling Contract

“[BP], its subsidiaries and affiliated companies, co-owners, and joint venturers, if any, and their employees, officers and agents shall be named as additional insureds in each of [Transocean’s] policies, except Workers’ Compensation for liabilities assumed by [Transocean] under the terms of this Contract.”

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Deepwater Horizon: The Additional Insured

Coverage in the Relevant Policy

• Extended “Insured” status to include “[a]ny person or entity to whom the ‘Insured’ is obligated by oral or written ‘Insured Contract’ … to provide insurance such as afforded by [the] Policy.”

• “Insured Contract”: “[A]ny written or oral contract or agreement entered into by the ‘Insured’ … and pertaining to your business under which the ‘Insured’ assumes the tort liability of another party to pay for ‘Bodily Injury’ [or] ‘Property Damage’ to a ‘Third Party’ or organization.”

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Deepwater Horizon: The Issue

• BP sought coverage under Transocean’s primary and excess policies, claiming additional insured status

– BP was self-insured for much of its liability

– Transocean had a potential of $750M of coverage

• Insurers (supported by Transocean) denied coverage, claiming the Drilling Contract made clear that Transocean was not responsible for liability for subsurface pollution and BP could not claim Additional Insured status for such claims

• Question: Does the Court look only to the Policy to determine BP’s Additional Insured status, or to the Drilling Contract as well?

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Deepwater Horizon: The Decision

• Texas Supreme Court (on certified question from the 5th Circuit)

– Because the grant of Additional Insured status incorporates definition of “Insured Contract,” it is necessary to look to the “Insured Contract” to determine the scope of coverage

– “[W]e determine the scope of coverage from the language employed in the insurance policy, and if the policy directs us elsewhere, we will refer to an incorporated document to the extent required by the policy.”

– Lesson: The policy controls in the first instance, but can direct you to look elsewhere

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The Need for Causation to Trigger Additional

Insured Status: The Indemnification

Obligation Alone is Not Enough

• What type of causation is necessary to tie the claim asserted against the purported Additional Insured to the coverage afforded under the policy to the Additional Insured

– Burlington Ins. Co. v. NYC Transit Auth., No. 57, 2017 N.Y. LEXIS 1404 (N.Y. June 6, 2017)

• New York Court of Appeals conclusion that there is no Additional Insured status under a very common (and standard) Additional Insured endorsement unless the Named Insured’s actions proximately caused the injury

• Contrast other courts (and long-held stance by policyholders) that but for causation is sufficient

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Practice Tips:

Additional Insured Endorsements

• Additional insured coverage may provide more, less, or exactly what coverage the parties anticipated

• Review indemnity and insurance provisions before contracts are signed AND

• Review the actual insurance policy or the additional insured endorsements

• Try to ensure the two match the intent of the parties, or at least identify the gaps

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Waivers of Subrogation

• Subrogation: allows a party that has paid a loss on behalf of someone to recover from the party that actually caused the loss

– Common issue for insurers who pay a claim

• Waiver of subrogation: prevents the insurer from suing the party at fault (if within the waiver)

• Waivers of subrogation are common and are enforceable

• Ideally require two steps

– The waiver in the contract itself

– An acknowledgment of the waiver by the insurer

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Sample Waiver of Subrogation Language

“Each such policy shall waive or otherwise prohibit insurer subrogation against Company and all such other Additional Insureds.” [See previous additional insured requirement language]

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Sample Waiver of Subrogation Language

“Party A waives its rights against Company, its parent, affiliates, subsidiaries, agents, officers, directors and employees for recovery of loss or damage to the extent such loss or damage has been paid by insurance required by this Agreement, or would have been paid by insurance required by this Agreement but for the application of a deductible or retention. Party A also grants to Company, its parents, affiliates, subsidiaries, agents, officers, directors and employees a waiver of any right to subrogation that any insurer of Party A may acquire against Company, its parents, affiliates, subsidiaries, agents, officers, directors and employees by virtue of the payment of any claim, loss or damage under insurance required by this Agreement. Party A agrees to obtain any endorsement that may be necessary to affect the above waivers of subrogation, but this provision applies regardless of whether or not Party A has received a waiver of subrogation endorsement from the insurer.”

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Waivers of Subrogation: Are They

Necessary?

• Do you need a waiver if you have AI status?

– Insurer generally cannot subrogate against an insured, so if you are an AI, insurer should not be able to seek subrogation

– BUT: What if outside the AI endorsement?

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Waivers of Subrogation: Are They

Necessary?

• Bottom line: generally a good idea to get a waiver of subrogation

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QUESTIONS?

Ms. Pfeifer is a trial attorney and Of Counsel in the Minneapolis office of Dorsey & Whitney.

She represents clients in all types of complex commercial litigation, with a particular emphasis

on insurance coverage disputes, construction litigation, and health care litigation. Her clients

include public and private corporations, for-profit and non-profit entities, financial institutions,

and individuals.

Through her work with the Tort Trial and Insurance Practice Section (TIPS) of the ABA, Ms.

Pfeifer also serves as a Senior Editor of the CGL Reporter Editorial Board. Written by

practicing attorneys, the CGL Reporter, published by IRMI, provides annotations of important

coverage decisions from across the nation involving general liability and other business-

related policies, and provides commentary on cases and their implications to risk

management, insurance, and legal professionals.

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Katie Pfeifer

Of Counsel

Dorsey & Whitney LLP

50 South Sixth Street, Suite 1500

Minneapolis, MN 55402-1498

(612) 492-6947 : phone

(612) 340-2777 : fax

[email protected]

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